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Monitor has secured a formal agreement from Peterborough and Stamford Hospitals NHS Foundation Trust to implement a recovery plan aimed at closing an annual £40 million financial gap and securing vital services for patients.

A hospital which has been crippled by private finance initiative repayments would not be able to pay its staff or buy any more medical supplies if the Department of Health does not intervene, financial experts have suggested.

An independent team of experts appointed by health regulator Monitor found that Peterborough and Stamford NHS Foundation Trust is "financially unsustainable" in its current form.

The trust had a deficit of £37 million by the end of the last financial year, despite receiving a one-off payment from the Department of Health of £44.1 million.

But the Contingency Planning Team (CPT) found that if there were no further support, the trust "would not be able to pay its bills (such as for wages and supplies) as they fall due".

The CPT criticised the "under utilisation" of the trust's main hospital - which is also the source of the massive PFI debt.

Peterborough City Hospital, a 611 bed hospital, is provided under a PFI agreement that is costing £40 million a year and has 31 years left to run.

The Department of Health approved the PFI scheme in June 2007, even though Monitor raised serious concerns about the affordability of the scheme.

In February, the Department was criticised for allowing the PFI deal to go at the same time as awarding a franchise to a private firm to run the nearby Hinchingbrooke Hospital.

The Commons Public Accounts Committee (PAC) said there had been a "complete lack" of strategic oversight over the building of the hospital in Peterborough while allowing Circle healthcare to run Hinchingbrooke which is just 23 miles away.

The CPT estimated that for the next five years the trust will show a "continuing deficit of £38 million or more each year, and a cash shortfall of at least £40 million a year", the team said.

Despite the financial struggles it is still providing appropriate patient care, the CPT said.

The team will soon make a series of recommendations as to the future of the hospital, a Monitor spokeswoman said.

We have long known that the East is a fantastic place to call home. Now one town in the region has come top of a list of the best places to live in the country. Stamford, near Peterborough, ticked all the boxes in the survey carried out by the Sunday Times. Stuart Leithes went to find out why.